Nexus: where you owe the duty to collect
Nexus is a connection to a state strong enough that the state can require you to collect its sales tax. It can come from a physical presence, such as an office, an employee or inventory, and in many states from sales volume or transaction counts alone. The thresholds differ by state and change over time.
If you sell online to customers in other states, review your sales by state each year and compare them to each state's published thresholds.
Taxability: what is subject to tax
States decide which goods and services are taxable. Many tax most physical goods and exempt some, such as certain groceries or clothing, while services are taxed far less consistently. Digital products, software and shipping charges also vary.
Do not assume. Look up each product category for each state where you have nexus, or ask a tax professional. Record the result in an item or product setting in your accounting software.
Rate: who sets it
The rate you charge often combines state and local portions and may depend on the delivery address. Software and state lookup tools can find the right combination. Avoid keeping a single remembered rate for all customers.
If you collect the wrong amount, you may owe the shortfall from your own funds. Check the setup after any address change.
Registering, collecting and filing
Before collecting in a state, you generally register for a permit or account. Collecting without a permit is usually a violation. After registering, you collect from customers, record the tax in a liability account and file returns on the schedule the state assigns. Some states require frequent filing even when no tax is due.
Keep each state's filing and payment confirmations with the report used to prepare them.
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Crossed a state's remote seller threshold? We prepare and submit the sales tax permit application and send you the filing schedule.
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What your books need to show
Track sales by jurisdiction, taxable versus non-taxable sales, tax collected, and exempt sales with their certificates. Tag every sale correctly at the time of invoice. A report that lists these items by period is the foundation for every return.
For New Jersey specifics, see our guide on sales tax for small businesses. For other states, rely on the state's agency website.
A starter exercise for online sellers
Export your sales for the past twelve months by destination state, with total sales and the number of orders. Put the list next to each state's published thresholds. States where you are near or past a threshold go on a watch list for professional review. States far below can wait.
Repeat the exercise each quarter. Growth can push you across a line without any single dramatic sale.
Worked example with numbers
You sell a taxable product to a New Jersey customer for $400. At the New Jersey rate listed by the Division of Taxation (6.625%), tax is $26.50. A sale to a customer in a state where you have no registration or obligation raises a nexus question, so check that state's rules rather than assume.
Mistakes that cost money
Assuming online means no tax. Treating all services as nontaxable. Not checking registration requirements in other states.
Check your work
Confirm each state's registration and filing rules on its official revenue site.
Common questions
Do I collect tax on shipping?
It depends on the state and on how the charge is stated. Check each state's rule.
If a marketplace collects the tax, am I done?
Often the marketplace handles collection for sales through it, but your own sales elsewhere may still require collection. See our guide on marketplace sales.
Who should advise on this?
A state tax agency, a CPA or a sales tax specialist. Multi-state situations in particular benefit from professional help.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.